| What is meant by market segmentation?Market | | | | instance, carefully dissect their databases |
| segments consist of groups of people or | | | | in terms of purchase behavior. Other |
| organizations that are similar in terms of | | | | segments are based on consumers' motivations |
| how they respond to a particular marketing | | | | and concerns. Marketer choose this because |
| mix or in other ways that are meaningful for | | | | motivations and concerns are what cause |
| marketing planning purposes.The entire field | | | | consumers to act on an offer.We don't think |
| of market segmentation is based on this idea, | | | | that there is only one "correct" way of doing |
| that consumers have differing needs. They | | | | segmentation research, nor that there is a |
| will find value in different products. They | | | | single set of segments waiting to be |
| will respond differently to marketing | | | | "discovered." While the analysis needs to |
| communications. They will gravitate toward | | | | employ objective statistical methods, any |
| different price points.Because of this, | | | | number of judgments, preferences and |
| businesses operate more efficiently if they | | | | practical considerations go into the design |
| can act on those differences. A business | | | | of the process and the final determination of |
| that tries to offer a single undifferentiated | | | | the segment structure. The same dataset can |
| product with generic marketing support will | | | | yield different segments.Market segmentation |
| always lose out to more nimble competitors | | | | spotlights opportunities for health plans to |
| who have specific targets and know how to | | | | improve marketing and sales, staff training, |
| serve them.We often work for health plans. | | | | customer service, new enrollee intake, |
| In the Medicare Part D world for instance, | | | | business planning, and public relations. It |
| health plans are struggling to make sense out | | | | will be used by health plans that want to |
| of new regulations while meeting very tight | | | | assure they emerge from this period of |
| deadlines. But today's difficulties are | | | | dramatic Medicare market change as a coverage |
| going to give way to a market where | | | | provider of relevance and viability. Part of |
| segmentation will be of great benefit because | | | | this means achieving sales and marketing |
| mass marketing will not work.Which Segment?It | | | | goals. Part of this means establishing a |
| is obvious that all competitors cannot target | | | | market position where consumers think of you |
| the same segment and succeed. A common | | | | as you'd like them to think of you.Compared |
| mistake is to assume that you must focus on | | | | to other forms of marketing research, the |
| the "heavy buyers" who, in reality, are often | | | | sample sizes for segmentation studies tend to |
| not the most profitable group. For example, | | | | be large. The simple reason is that you need |
| a consulting firm may decide to forego | | | | to be able to profile multiple sub-samples |
| targeting Fortune 500 (TM) firms that are | | | | (the segments) with a high degree of |
| fiercely contested by the Big Four accounting | | | | precision, rather than just the total sample. |
| consulting firms and instead pursue middle | | | | It is unusual to use fewer than 500 and not |
| market firms. "Sub prime" lenders and credit | | | | unusual to use 2,000-3,000.AnalysisThe most |
| card companies know exactly who their | | | | complex and opaque part of segmentation |
| prospects are, and do not bother advertising | | | | research is the derivation of the |
| in Money magazine or funding public | | | | segments-that literally means dividing the |
| television shows. Part D players may find | | | | sample into a small number of exclusive |
| market niches among seniors with, for | | | | clusters. This is almost always done by |
| example, private Medigap policies and | | | | applying some form of statistical cluster |
| specific interests or needs that the plan can | | | | analysis. The analyst will typically try |
| address.For health plans, market segmentation | | | | several different cluster "solutions." While |
| is not common. Part of this is due to health | | | | there are objective statistical measures of |
| plan cultures developed to serve large | | | | the quality of a cluster solution, they are |
| employer-based health plans and retirees. | | | | no more important than informed managerial |
| But Medicare Part D is an unprecedented | | | | judgment. Researchers oftenl offer two or |
| public-private effort to create a consumer | | | | three possibilities to discuss.The "right" |
| market. And Medicare's Part D program is | | | | number of segments is subjective, but in |
| just one element of a far reaching effort to | | | | practice companies tend to settle on four to |
| use private health plans to control Medicare | | | | eight segments. In a diverse, complex, and |
| expenses. We believe the market | | | | lucrative category more might be called |
| understanding developed through segmentation | | | | for.Agreeing on the number of segments, as |
| will serve in a variety of ways.Identifying | | | | well as the labels that will be attached to |
| and targeting one or a few segments instead | | | | them, always requires careful study of their |
| of the entire market allows the firm to use | | | | full profiles. While the segments may be |
| its resources more effectively. Market | | | | defined with one class of basis variables |
| segmentation means products and messages more | | | | (e.g. attitudes about fashion and shopping), |
| aligned with the needs of selected | | | | you always need to describe the segments in |
| consumers.Researching SegmentsSome type of | | | | terms of other variables (e.g. demographics, |
| systematic research is required as a | | | | spending, media preferences, preferred |
| foundation for market segmentation. Most | | | | brands) that were not part of the definition |
| often, this research entails a sample survey | | | | of the segments.ApplicationAn important |
| which should be done by research | | | | deliverable from most segmentation research |
| experts.Segmentation research addresses a set | | | | is a tool for classifying other consumers |
| of fundamental questions: | | | | into the segments. This could be a formula |
| | | | where by asking a small number of questions |
| 1. How many segments are there? | | | | you can place a "new" consumer in one of the |
| | | | segments. It could be a set of logical rules |
| 2. How large is each segment? | | | | ["if combined account balances >$10,000 + |
| | | | have at least three accounts + non-mortgage |
| 3. How do you define the segments? | | | | debt < $20,000: assign to segment |
| | | | G"].ConclusionMarket segmentation is a |
| 4. How do you describe the segments?Segments | | | | far-reaching strategy that can benefit |
| are typically defined by dimensions such | | | | players.The underlying rationale is to use |
| as:- Behavior-such as the frequency of | | | | your resources more efficiently by serving |
| purchasing, total spending, or the mixture of | | | | consumer needs better. The mechanism is to |
| stores shopped (switching, investigating, | | | | treat the market as consisting of multiple |
| comparing, delegating decisions), | | | | segments with different needs, rather than as |
| or- Characteristics-such as geodemographics | | | | a mass market where "average" really suits no |
| for consumers or SIC codes for businesses | | | | one very well.The research requires a sample |
| (health conditions, subsidy status, current | | | | survey. It defines and describes segments |
| coverage status), or- Attitudes-such as | | | | from which the health plan can choose one or |
| financial sophistication, fashion | | | | more targets. We believe playser in the new |
| orientation, or disposition to adopt new | | | | Medicare market are especially ready to get |
| technologies (interest, optimism).The | | | | more "bang for the buck" by more precisely |
| variables that are used to define the | | | | meeting segments' needs and by using |
| segments are called the "basis." The basis | | | | marketing tools to which that segment will |
| is chosen in light of how the segmentation | | | | respond. |
| will be applied. Direct marketers, for | | | | |